First of all we would like to appologize for having to communicate this news with you during the holidays - it was not our intention.
The new EU-VAT regulations will affect on 1.1.2015 not only all EU consumers but also everyone - worldwide - selling to EU, so it will affect everyone directly or indirectly.
This new - as of Jan 1st, 2015 - regulations completely changes the way in which VAT (consumer sales tax) is charged on digital services.
Instead of the tax rate being applied according to where the supplier is located, the seller must determine by 2-3 independent methods where the buyer is located and apply the relevant local rate of tax to the purchaser. So that means if you (as seller) live in Italy and someone in Germany purchases your digital file, you need to pay VAT at the German rate to the German authorities. Just to be clear, that's a total of 75 different tax rates across 28 different markets!
The intention of this new legislation, is to put a stop to billions of euros of the consumer tax being lost due to multi-nationals locating in low tax jurisdictions.
However, the implementation of these rules will cripple, and potentially force into closure, hundreds of thousands of micro-businesses including Joomla Extension providers across the EU and also worldwide. The costs in paperwork, bureaucracy, and amendments to websites and payment processing will simply mean that many businesses are no longer viable.
And this is just the first step, as there are plans to extend this concept to physical goods selling in 2016!
More references about new law:
- European Union notes on VAT tax rule on E-services and telecommunications
- EU VAT Action Site
- Take action on EU VAT Action Site
- Commission Blog on EUVAT (also see comments to the blog)
- Telegraph UK article impact analysis on EUVAT
- Facebook #EUVAT pages
- #EUVAT Tweets
What does this mean to you ?
The new law will influence you in one of the following ways:
- If you make a purchase from an EU location, you will be charged VAT accordingly based on your purchasing location (and your invoicing address will have to match, unless there is a third proof of your real location)
- If you sell digital products (no matter where you are located) to EU located purchasers, you need to charge them appropriate VAT and keep digital records for 10 years of all these transactions and of course quarterly funnel collected VAT to each EU state
So as a purchaser, you will most likely experience price increases when purchasing from a EU location (regardless of the seller's location).
As a seller, you will most likely need to suffer extra costs to setup compliance with this new EU law and to be able to handle the extra book-keeping and accounting and digital record-keeping. Increasing your prices to offset these extra costs is an option, but it will still affect your business.
If you use CBSubs for your digital goods sales, it is useful to know that its Tax integration functionality already supports the new tax calculations. However, as there is no reliable technical way yet to get 2-3 proofs of EU-country of the customer, that part is not yet solved - in no cart yet - as that new regulations' requirement is not implementable yet.
How can you help ?
This law is just plain wrong. It will not accomplish it's main objective, but it will cripple small and mid-size digital businesses and surely increase consumer prices for EU located purchasers.
Here are some ways you can help and voice your objections now:
- Read and sign the Petitioning Commissioner for Economic and Financial Affairs, Taxation and Customs PIERRE MOSCOVICI
Once you sign the petition share it with your friends on all social networking platforms and email - Send a message to all your Members of European Parliament (MEPs).
Just click your country on this map to find your MEPs and send each one your objections about this law. - Comment directly on the EU Commissioners blog stating your objection / opinion.
Purchase now instead of later
It is not our intention to turn this into a purchasing call. However, if your Joomla livelihood depends on Joomlapolis digital goods and services, then you can avoid price increases that will most likely happen (if this law is not reverted) on January 1st, 2015. So purchase now and even stock up your subscriptions by purchasing back to back yearly subscriptions (you can purchase this way 2 years worth).
The same of course advise can be used with all your Joomla third-party purchases.